Keele Business School Economists comment on the Bank of England's quantitative easing measures
The Bank of England has announced today that it will increase the target stock of purchased UK government bonds by an additional £100 billion, continuing its existing 'Quantitative Easing' programme. The aim of this programme is to provide fresh liquidity to commercial banks, to enable them to continue lending and thereby kick-start recovery from the recession. The Bank of England pays for these bonds with the (electronic) money that, it alone, is entitled to create. With the inflation rate currently at 0.5%, well below the 2% target, there are no serious risks of inflation picking up.
This policy will also provide further support to the Treasury policy, helping to maintain low-interest rates on government bonds at a time of faster-than-usual borrowing. Together with maintaining the base interest rate at 0.1%, we believe these policies are in the right direction to support the economy during the COVID-19 pandemic. That said, increasing liquidity does not necessarily result in a boost to the real economy and bolder measures might be needed in the future, in terms of stronger fiscal policies and/or negative interest rates.
Dr Chris Tsoukis, Senior Lecturer in Economics was also interviewed on BBC Radio Stoke following the Bank of England's announcement. You can listen again to the interview on BBC Sounds from 03:08:10.